US debt poses future peril for households

Millions in the United States who are already struggling with high cost of living could eventually feel the effects of persistently high debt as US gross federal debt surpassed $40 trillion on Wednesday, with economists and think tanks warning it's a "huge burden" that could drive up interest rates, inflation and borrowing costs.

The record-breaking, unprecedented national debt reached the milestone in part due to defense costs, social programs like Social Security and Medicare, and interest payments on that debt — a big part of federal spending, experts said.

"The national debt hitting $40 trillion is a huge burden on the back of every American," Christopher Ball, director of the Central European Institute at Quinnipiac University, Istvan Szechenyi Chair in International Economics and an associate professor of economics, told China Daily.

"Like all debt, it must be paid back. If it were at a more reasonable level, then we could pay a little more in taxes or cut a little spending, not too much and not too painfully. But when it is that high, it means we have to suffer serious pains or go bankrupt.

"This doesn't have to be done today — which is why Americans may not feel the burden today — but the payments will come due. When that happens, most likely the average American will suffer in facing really high interest rates, really high taxes and massive cuts in basic services like Social Security, Medicare and all other government-supported social services. Again, the longer we wait, the more the pain when we face it."

High government borrowing can put pressure on market interest rates, and has already raised borrowing costs on mortgages and cars, say experts.

The benchmark 30-year fixed rate mortgage was 6.65 percent on Thursday, higher than a year ago when it was 6.58 percent, the Associated Press reported. The rates are influenced by the 10-year Treasury yield, inflation forecasts and the economic outlook.

US consumer spending is vital, so a drop in shopping could cause slower economic growth, data show.

But the bond market showed signs of strain on Thursday due to fears over US government debt and high inflation. Stocks fell as investors evaluated concerns.

Fluctuating prices

US consumers have already seen fluctuating gas prices this year, while the Trump administration renewed threats to hurt Iran economically on Wednesday.

The rise in the national debt also comes as the administration said it's focusing on more spending on the ongoing conflict with Iran.

Kush Desai, a White House spokesman, told AP that the Trump administration "has been focused on slashing waste, fraud and abuse in federal spending while accelerating economic growth to get America's debt-to-GDP ratio trending in the right direction".

But Michael A. Peterson, CEO of the Peter G. Peterson Foundation, a think tank focused on US fiscal policy, said in a statement: "It's shocking that we've doubled the federal debt in less than 10 years, and we must change course.

"The more debt we take on, the more interest costs we have to bear, which now even exceed the cost of national defense. And every trillion we add to our debt contributes to higher interest rates and inflation, increasing the mortgages, car loans and credit card bills of all Americans."

An analysis of OECD data by AP described the US as having the worst fiscal position among developed economies.

The Bipartisan Policy Center estimates that the US will reach the $41.1 trillion statutory debt ceiling between late winter and midsummer of 2027.

If the spending cap is reached, Congress will need to again vote on whether to raise or suspend it.

Peterson added: "Despite the obvious recklessness of this fiscal path, we are showing no signs of slowing down. The debt growth is projected to accelerate as our society ages and healthcare costs continue to balloon. If we don't reform our budget, we will hit $50 trillion in just six years."